Remarks By Franklin L. Lavin
Under Secretary of Commerce for International Trade,
American Chamber of Commerce, New Delhi,
May 1, 2006

As prepared for Delivery

INTRODUCTION

Good afternoon, and thank you, Mr. Amrit Kiran Singh and Bob, for that warm introduction. I will also like to thank Mr. Chowdary, Vice Chairman of the AMCHAM and Mr. Ramesh Bajpai, Executive Director of the AMCHAM for inviting me to this event.

It is a pleasure to be here with you today at such an auspicious time in U.S. - India relations. I'm particularly pleased to be here at the Annual General Meeting of your Chamber and to have the opportunity to address your membership and invited guests. I am aware of the key leadership role AMCHAM India is taking in support of the interests of US companies in India and your many other efforts towards fostering a more vibrant economic relationship between the United States and India.

I understand the AMCHAM has played a significant role in reforms in the banking sector, in reducing the tariff for medical equipment and devices, in advocating for a greater role for US defense companies towards meeting India's defense requirements, and in reducing the duties in the IT sector. I know this list goes on. Well done!

I would like you to know that I consider AMCHAM India as a key and vital player in this great and emerging bilateral relationship and I thank you and encourage you to continue to go full speed ahead."

OVERVIEW

Today I would like to discuss where U.S. - India relations stand and provide some thoughts on how we should proceed. I'll discuss the good news and the challenges that lie ahead for our governments and for U.S. companies. I will address the importance of President Bush's trip to India and new opportunities in the commercial relationship. Finally, I will talk to how all of these developments have led us to what we view as a major step ahead for the U.S. - India Commercial Dialogue.

A LOGICAL PARTNERSHIP

Let's begin with the bilateral relationship. In my view, the U.S. and India are logical, natural partners, although the relationship has not always lived up to its promise. The United States and India share the same bedrock democratic values. India is increasingly enjoying a consensus on the importance of economic growth to create jobs and elevate the lives of its people. Whether we look at the two million Americans of Indian descent or the 85,000 Indian students who go the U.S. annually for their education, we can see there is a good fit between our two countries on a range of issues.

The economic numbers bear this out. Twenty-five years ago our total bilateral trade was only $2.8 billion. By 2005, that had increased nearly tenfold to $27 billion. U.S. exports to India have nearly doubled in the last three years from $4.1 billion in 2002 to nearly $8 billion in 2005. With a population of over 1 billion and an economy with an 8% growth rate, India is increasingly an important economic factor, a location for investment, a platform for technology development and a market of interest to American companies.

We applaud the liberalization moves that India has already undertaken such as India's raising investment caps in several sectors and lowering the import tariff on most industrial goods to 12.5%, the latest in a series of important steps in the right direction.

And we are seeing evidence of results. The U.S. Commercial Service in India reports unprecedented interest by American companies this year. For the first six months of U.S. Fiscal Year 2006, our Indian offices achieved $2.6 billion in export successes for U.S. companies they assisted. That's more than the total for all of 2005 ($2.2 billion). Already this year we have seen state delegations from Michigan, Iowa, Illinois and Rhode Island visiting India. I helped join the trend while serving in Singapore because I was able to take a business delegation to India comprised of U.S. companies based in Singapore. So I know from personal experience of the growing interest in the market.

Outside of the United States, we have our largest number of Commercial Services offices of anywhere in the world in India. And our presence is growing. I am pleased to announce that we are adding a new officer position in Calcutta this summer to meet the growing needs in India.

It is also very encouraging to see the increased activities between the United States Federal Aviation Administration and the Indian Civil Aviation Ministry that build on our recent "Open Skies" agreement. The first-ever FAA office in Delhi will enable the United States to work with India through a philosophy of managed growth in aviation to ensure the highest level of safety, as well as efficiency. The Indian government's approval of a Memorandum of Agreement with the FAA, once signed, will pave the way for the FAA to work more closely with Ministry of Civil Aviation to provide technical cooperation, which could include a wide range of activities for air traffic control and safety oversight as well as other types of training and assistance.

CHALLENGES

So there's a lot of good news in the relationship and in the great potential that we share in trade. But we face significant challenges as well.

Despite the good trade statistics and the progress that India has made in economic reforms and moving towards more open markets in the last 15 years, there's a lot of ground to be made up if trade and investment are to reflect India's potential role in the world economy. India had the great misfortune of gaining independence at the intellectual high water mark of Fabian socialism and third world nationalism. Unfortunately, those economic philosophies held India hostage for several decades. India still has to make up for many years of slower economic growth. As a reference point, even with a 30% growth in U.S. exports to India last year, the vast market of India accounts for less than 1% of all U.S. exports.

Additionally, India's reforms are taking place in a context of reforms around the world. So in the competition for business attention globally, India's moves might seem less impressive. Remember, businesses look at relative opportunity and not absolute rates of GDP growth. So the $8 billion dollars of annual U.S. exports to India is about what the U.S. will ship to Canada in a two-week period.

A few other examples: Cumulative U.S. foreign direct investment in India amounted to $6.2 billion at the end of 2004. While the U.S. is India's largest investor, think of the potential being missed when you consider that U.S. FDI in Singapore amounts to $56.9 billion.

Beyond investment, India needs to sort through the challenge of its high trade barriers. The more India can lower its barriers, the better off its people will be. While India has significantly lowered tariffs on non-agricultural products, agricultural tariffs remain around 40%.

As a significant exporter of services and in light of the benefits that India can achieve through the WTO Doha round, we believe that it would be beneficial for India to lower these high agricultural tariffs.

Governance is another area that requires attention. Because if a society is hindered by corruption or bureaucracy, removing trade barriers will not get you very far.

Also, India says it wants more foreign investment. Then, we urge India to address a number of legacy cases. Resolution of these cases would send a signal that India is truly open for business.

The larger picture is clear. A transparent and efficient legal system that helps companies that play by the rules is important for translating the opportunity of market economics into benefits for India's citizens. Foremost in that legal system, a vibrant IPR regime is critical to the promotion of a creative, technologically advanced economy.

Some progress has been made toward creating a more comprehensive framework for IPR protection in India. For example, in 2005 India extended patent protection to pharmaceutical and agricultural products. Still, India does not have in place a TRIPS-consistent data exclusivity regime for these products. Also, many perceive an uneven enforcement of India's existing trademark and copyright laws. India consumers and businesses deserve the finest IPR protection around. India should be a global leader in pharmaceutical research and development. But until the IPR laws are world class, R&D will take place elsewhere.

Finally, although India has recently opened up a sliver of its retail sector to foreign investment, the sector is still closed to most American retailers. Allowing Indian consumers more convenient access to desired consumer goods at lower prices would be of great benefit to India, particularly to the poorer, rural sections of the country.

CHALLENGE FOR U.S. COMPANIES

So India faces challenges. And I would argue that the U.S. companies also need to do a better job. The U.S. companies need to think creatively about how to adapt their products and calibrate their activities to take advantage of the great potential in India and meet aggressive competition from companies from Japan, Korea, Europe, and Canada.

U.S. companies need to take another look at India. They will see it is a different nation than it was a decade ago. The economy is stirring and American businesses need to think through how to include India in their global strategies.

MUTUAL RESPONSIBILITIES

So we each have our responsibilities. India is working on making its market more business friendly, and U.S. companies are trying to develop architecture and an approach that allows them to enjoy success there.

And Government has an important responsibility in this process as well…which brings us to President Bush's recent trip to India.

PRESIDENT'S TRIP

The President's trip was a milestone in U.S. - Indian relations and is symbolic of our broader hopes for creating a rich and vital new collaboration. The President has made the relationship with India a priority and has announced cooperation in a number of areas including civil nuclear power and other clean and safe technologies to allow our nations to reduce their dependence on oil.

Importantly for all of us here today, President Bush and Prime Minister Singh discussed intensifying efforts to boost bilateral trade and investment. They agreed to several specific actions in relation to the economic interaction between our two countries, which I would like to discuss now.

If I might just add a thought in regard to Prime Minister Singh … it has been helpful to the discussion between our nations that India is led by a former Finance Minister who fundamentally understands the power of market forces and the need to attract foreign direct investment in promoting economic development and alleviating poverty.

THE COMMERCIAL DIALOGUE

President Bush and Indian Prime Minister Singh recognized that the time was ripe for a new economic dynamic when they agreed to revitalize the bilateral Economic Dialogue at their meeting in Washington last July. To fulfill that commitment, the U.S. Department of Commerce and India's Ministry of Commerce and Industry have taken steps with our part of the Economic Dialogue - the Commercial Dialogue. Both sides are now fully committed to regular contact to discuss nuts-and-bolts issues that affect doing business in each other's markets. Under the Commercial Dialogue, we have been holding a number of substantive public-private sessions on standards, in which we discussed general principles on how standards are established, administered and enforced by both countries. Both sides now have a better understanding of these principles.

In view of the success of the President's trip and the blossoming commercial relationship, the Department of Commerce proposed to India's Secretary of Commerce S. N. Menon that the Commercial Dialogue should be elevated, enhanced and expanded and that it should demonstrate greater engagement by the two private sectors. Minister Menon accepted our proposal and that has brought me here to India.

The expanded agenda for the Commercial Dialogue will cover intellectual property rights enforcement, antidumping and countervailing duty procedures, and commercial opportunities for small and medium-sized enterprises.

CONCLUSION

This upgraded dialogue reflects the high level of importance we are placing on making commercial relations with India.

The dialogue with India is one of only four such dialogues in current progress, joining those with our NAFTA partners, the EU, and China, but incorporating a distinctive Indian approach.

To mark this new, elevated dialogue, I have come to India so that we may together tackle the challenges I have outlined. I look forward to seeing Secretary Menon, and meeting with other Indian officials. We have much work ahead of us in our bilateral relationship. All of the elements of success are there but let's make sure that we take advantage of these for immediate and long-lasting progress. We will do our part to ensure that the recent up tick in the U.S.-Indian relationship is not a short-term matter but an enduring relationship to our mutual satisfaction and interest.

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